Wednesday, December 02, 2015
8:08:18 PM EDT

Stocks Retreat On Weak Oil And Economic Data

by
James Brown

Editor's Note:
A second day of weak economic data combined with another drop in crude oil pressured the stock market on Wednesday. All of the major U.S. indices posted losses.

Current Portfolio:

BULLISH Play Updates

Autodesk, Inc. - ADSK - close: 64.55 change: -0.17

Stop Loss: 61.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 01, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.5 million
New Positions: Yes, see below

Comments: 12/02/15:
ADSK quietly traded sideways beneath resistance near $65.00. I don't see any changes from last night's new play description. Our suggested entry trigger is $65.25.

Trade Description: December 1, 2015:
It has been a bumpy ride for ADSK investors this year. The company is in the middle of a transition from selling perpetual software licenses to selling subscriptions. It's a move that mirrors larger rival Adobe Systems's (ADBE) transition to a subscription model.

If you're not familiar with ADSK they are in the technology sector.
According to the company,
"Autodesk, Inc., is a leader in 3D design, engineering and entertainment software. Since its introduction of AutoCAD software in 1982, Autodesk continues to develop the broadest portfolio of 3D software for global markets. Customers across the manufacturing, architecture, building, construction, and media and entertainment industries-including the last 19 Academy Award winners for Best Visual Effects-use Autodesk software to design, visualize, and simulate their ideas before they're ever built or created. From blockbuster visual effects and buildings that create their own energy, to electric cars and the batteries that power them, the work of our 3D software customers is everywhere you look."

Year to date the stock is up +7.7%. Yet ADSK is up +53% from its October 2015 low. What's driving the rally? It's certainly not revenue growth.
The company tends to beat Wall Street's bottom line earnings estimates but revenues have been soft. The company has lowered their guidance multiple times this year.

Their most recent earnings report was November 19th. ADSK reported Q3 results of $0.14 a share. That beat expectations. Revenues fell -2.9% to $600 million. Management lowered their Q4 guidance. Yet they raised their 2016 outlook for the first time in several months. The improved 2016 outlook certainly helped. There was a brief sell-off in the stock (Nov. 20th) but ADSK quickly recovered.

One of the main reasons ADSK has performed so well lately is the market's hope that two major activists investors will do something to unlock more value. Eminence Capital owns a 5.8% stake in ADSK. Sachem Head Capital recently disclosed at 5.7% stake. The two activist funds have teamed up together (a combined stake of 11.5%). Expectations that these activists will drive change in ADSK has fueled a significant rally.

Today shares of ADSK have rallied toward major resistance at the $65.00 level. A breakout here would reaffirm that the bullish trend is still intact. The point & figure chart is bullish and forecasting a long-term target at $103. We want to hop on board if ADSK can break through the $65.00 level. Tonight we are suggesting a trigger to launch positions at $65.25. The stock can be somewhat volatile so I am suggesting small positions to limit risk.

Trigger @ $65.25 *small positions to limit risk*

- Suggested Positions -

Buy ADSK stock @ $65.25

- (or for more adventurous traders, try this option) -

Buy the JAN $67.5 CALL (ADSK160115C67.5)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Eaton Corp. - ETN - close: 57.13 change: -1.32

Stop Loss: 56.55
Target(s): To Be Determined
Current Gain/Loss: -1.6%
Entry on November 25 at $58.05
Listed on November 24, 2015
Time Frame: Exit prior to earnings in February
(option traders exit prior to January expiration)
Average Daily Volume = 3.8 million
New Positions: see below

Trade Description: November 24, 2015:
It has been a challenging year for ETN. Yet the action in the stock over the last few months is starting to look like a significant bottom.

ETN is in the industrial goods sector. According to the company, "Eaton is a power management company with 2014 sales of $22.6 billion. Eaton provides energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton has approximately 99,000 employees and sells products to customers in more than 175 countries."

The company has lowered its guidance multiple times this year. ETN is dealing with weaker demand overseas. The strong U.S. dollar makes this worse. The company is forecasting at -5% hit to revenues due to negative currency headwinds.

ETN's most recent earnings report was October 30th. They missed the bottom line estimate by a penny. Revenues fell -9% to $5.2 billion, also below estimates. The company's CEO commented on their outlook, "As we begin to plan for 2016, it is apparent that markets are likely to remain soft.
To deal with such weak markets, we will be expanding our 2016 restructuring program. We had been planning on this second restructuring program, in addition to the $145 million program we announced in the second quarter of 2015, to be on the order of $50 million to $60 million, but in light of current market weakness we are expanding the program to between $90 million and $100 million."

These restructuring efforts are expected to generate almost $330 million in cost savings over the 2015-2016 time frame. The stock rallied on this earnings report and news about its restructuring plans. After plunging from the mid $70s in May to the $50 level this past fall shares seem to have found a bottom.

The market is always looking forward. It appears investors believe the worst may already be behind ETN. That could explain why investors have begun buying the dips. Shares now have a bullish pattern of higher lows and higher highs. The point & figure chart has turned positive and is forecasting at $69.00 target. ETN does have short-term resistance in the $57.80 area. We want to buy a breakout. Use a trigger to launch bullish positions at $58.05.

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: -4.4%
Entry on November 25 at $43.05
Listed on November 18, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.6 million
New Positions: see below

Comments: 12/02/15:
Our FMC trade could be in trouble. The stock lost another -1.9% today. The two-day decline has erased the prior week and a half worth of gains. Shares look headed for the $40.00 level.

No new positions at this time.

Trade Description: November 18, 2015:
Shares of FMC have been struggling for a couple of years. The stock peaked near $83.00 in early 2014. Since then FMC traded at a low near $32.60 in late September this year. FMC's performance over the last couple of months looks like the stock has bottomed.

FMC is in the basic materials sector. According to the company,
"For more than a century, FMC Corporation has served the global agricultural, industrial and consumer markets with innovative solutions, applications and quality products. FMC acquired Cheminova in April of 2015. Pro forma revenue totaled approximately $4.5 billion in 2014. FMC employs approximately 6,600 people throughout the world and operates its businesses in three segments: FMC Agricultural Solutions, FMC Health and Nutrition and FMC Lithium."

The earnings picture has been disappointing over the last several months. The company reported its Q1 results on May 5th and missed on both the top and bottom line. Management lowered their guidance. FMC's Q2 results were not much better with the company missing analysts' estimates on both the top and bottom line again.

On October 12th FMC warned that Q3 earnings would take a hit due to currency weakness in Brazil. Here's an excerpt from the company's press release,
"FMC Corporation (FMC) today announced that, due to the recent rapid devaluation of the Brazilian real, the company is reducing third-quarter and full-year outlook for its Agricultural Solutions segment... A rapid devaluation of the Brazilian real, which depreciated over 50 percent versus the U.S. dollar in the past 12 months, and over 25 percent versus the U.S. dollar during the third quarter alone, has created significant headwinds that will continue to impact Agricultural Solutions segment earnings in the second half of 2015."

Shares of FMC plunged on this news from $37.50 to $35.00 but investors bought the dip. Earnings came out on October 28th. After warning in mid October their final results were above expectations. Q3 earnings fell from 72 cents a year ago to 42 cents but that beat the 38-cent estimate. Revenues were up +1.4% to $830.7 million, which was also above estimates. FMC rallied on this report.

Investors bought the recent dip (last week) and since then FMC has been showing relative strength. The rally has produced a triple-top breakout buy signal on FMC's point & figure chart, which now projects a $57.00 target. The relative strength continued today with a +2.6% gain and a breakout past short-term resistance at $43.00 and its 100-dma.

It's starting to look like all the bad news has been priced in and investors are betting on a turnaround in the company. The stock's recent rallies have been fueled with strong volume, which is normally a good sign. Tonight we are suggesting a trigger to launch bullish positions at $43.55. (Note: FMC is up five days in a row. Patient investors may want to wait for a dip before initiating new positions instead of our trigger at $43.55).

Stop Loss: 53.20
Target(s): To Be Determined
Current Gain/Loss: +1.1%
Entry on November 04 at $54.60
Listed on November 03, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 35.4 million
New Positions: see below

Comments: 12/02/15:
MSFT rallied to new highs and almost tagged the $56.00 level before giving back all of its intraday gains. Shares settled virtually unchanged today.

No new positions at this time. Let's see if broken resistance at $55.00 will hold as new support.

Trade Description: November 3, 2015:
MSFT is more than just a software company. MSFT is in the technology sector. It is considered part of the business software industry. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company is run under three segments. They have their productivity and business processes segment. This includes commercial office software, personal office software, and more. One of their fastest growing segments is MSFT's Intelligent Cloud business, which includes their server software and enterprise services. Then they have their "More Personal Computing" segment. This includes their Windows operating software, MSN display advertising, Windows phones, smartphones, tablets, PC accessories, Internet search, and their Xbox platform.

The stock has been dead money for almost a year. MSFT peaked near round-number resistance at $50.00 back in November 2014. Shares channeled sideways between support at $40 and resistance at $50 for months. That changed last month.

MSFT reported its 2016 Q1 results on October 22nd. Analysts were expecting a profit of $0.59 a share on revenues of $21.04 billion. MSFT beat both estimates with a profit of $0.67 a share. Revenues came in at $21.66 billion. Their Intelligent Cloud segment saw sales rise +8% but it was actually +14% on a constant currency basis.

Shares of MSFT soared the next day with a surge to 15-year highs.
The big rally is based on investors' belief that MSFT and its relatively new management is successfully transitioning away from declining PC sales and moving quickly towards the cloud (and mobile).

Normally I would hesitate to buy a stock like MSFT after a big gap higher. Too often stocks tend to fill the gap. However, shares of MSFT have been able to levitate sideways in the $52.50-54.50 zone as traders keep buying the dips. Odds are growing we could see MSFT rally toward its all-time highs near $60.00 a share from December 1999. The big gain in October produced a buy signal on the point & figure chart, which is now forecasting a long-term target of $82.00. Tonight we are suggesting a trigger to launch bullish positions at $54.60.

Stop Loss: 52.45
Target(s): To Be Determined
Current Gain/Loss: +1.4%
Entry on November 11 at $53.15
Listed on November 09, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 2.3 million
New Positions: see below

Comments: 12/02/15:
This morning PAYX announced they had acquired Advance Partners, "a leading provider of integrated financial, operational, and strategic services to support independent staffing firms." Terms were not disclosed.

Shares of PAYX saw a midday rally but the stock gave back all of its gains by the close and settled with a -0.4% decline on the day.

More conservative traders may want to raise their stop loss closer to the 20-dma near $53.50.
No new positions at this time.

Trade Description: November 9, 2015:
Last week the Bureau of Labor Statistics announced that the nonfarm payroll (jobs) report for October showed a gain of +271,000. That was way above expectations. The separate household survey showed a gain of +320,000 jobs. This pushed the unemployment rate down to 5.0%, the lowest reading since early 2008. Many believe that the U.S. has now reached full employment. Do you know what that means? It means more Americans working. That means more paychecks to be delivered and more HR services to be handled.

PAYX is in the services sector. According to the company,
"Paychex, Inc. (PAYX) is a leading provider of integrated human capital management solutions for payroll, HR, retirement, and insurance services. By combining its innovative software-as-a-service technology and mobility platform with dedicated, personal service, Paychex empowers small- and medium-sized business owners to focus on the growth and management of their business. Backed by more than 40 years of industry expertise, Paychex serves approximately 590,000 payroll clients across 100 locations and pays one out of every 15 American private sector employees."

PAYX earnings have been slowly and consistently creeping higher. Revenues have been rising about 8% the last couple of quarters. This company's most recent earnings report was September 30th. They beat estimates on both the top and bottom line, which helped fuel another rally in the stock.

PAYX management has been very consistent about paying a dividend. PAYX now sports a dividend yield of 3.7%. That could draw more and more income investors looking for a safe company to buy.

A recent article on Forbes.com, by Brett Owens, noted that
"demand for payroll outsourcing (60% of Paychex's latest quarterly revenue) will grow at a 3.9% compound annual rate between 2013 and 2018. HR outsourcing (40% of revenue) is on a stronger tear, with a projected 12.3% yearly gain in the same period" (source)

We like PAYX's relative strength. Shares are up +14.2% year to date. That compares to a +1.0% gain in the S&P 500 and a +7.6% rally in the NASDAQ.
The NASDAQ composite is up +18% from its August low but PAYX is up +26.7%.
The rally in PAYX has produced a buy signal on the point & figure chart, which is also forecasting a long-term target at $72.00.

On Friday PAYX found short-term support near $53.00. Tonight we are suggesting a trigger to launch bullish positions at $53.15.

Stop Loss: 19.20
Target(s): To Be Determined
Current Gain/Loss: +2.0%
Entry on December 01 at $21.55
Listed on November 30, 2015
Time Frame: 8 to 12 weeks
(option traders exit prior to January expiration)
Average Daily Volume = 2.2 million
New Positions: see below

Comments: 12/02/15:
Wednesday proved to be a bumpy session for SLCA. Shares saw a lot of back and forth but managed to eke out a gain (+0.2%) versus the market's widespread decline.

I would still consider new positions at current levels.

Trade Description: November 30, 2015:
The crash in oil prices to six year lows has crushed the oil and gas industry. It has been especially hard on some of the oil service stocks. SLCA is in that group but the company and the stock is showing signs of a bottom.

SLCA is in the basic materials sector. According to the company,
"U.S. Silica Holdings, Inc., a member of the Russell 2000, is a leading producer of commercial silica used in the oil and gas industry, and in a wide range of industrial applications. Over its 115-year history, U.S. Silica has developed core competencies in mining, processing, logistics and materials science that enable it to produce and cost-effectively deliver over 260 products to customers across our end markets. The Company currently operates nine industrial sand production plants and eight oil and gas sand production plants. The Company is headquartered in Frederick, Maryland and also has offices located in Chicago, Illinois, Houston, Texas and Shanghai, China."

What's great about SLCA versus many of its peers is SLCA's diversity. They do sell a lot of fracking sand to the oil and gas industry but they also sell to a wide range of industries. The company also has one of the strongest balance sheets among its peers.

Year over year results have been rough. SLCA last reported earnings on October 27th. Q3 results were a loss of ($0.03) a share. That was a penny worse than expected. Revenues were down -35% to $155.4 million, which was just below the $155.7 million estimate.

It looks like an ugly earnings report and yet shares of SLCA soared more than 20% the next day. The company said their overall tons of sand sold was down -12% from a year ago but up +16% from the second quarter. Furthermore SLCA management said they were selling more sand to the oil and gas business and essentially stealing market share from competitors.

The outlook for crude oil is still muddy but it looks like shares of SLCA have found a bottom. The last few weeks have developed a trend of higher lows. The point & figure chart is still bearish but a rally above $22.00 would generate a new triple-top breakout buy signal. Plus a breakout past resistance could see some serious short covering. The most recent data listed short interest at 37% of the 49.4 million share float.

SLCA is going to present at the Cowen & Co. Energy Conference on December 1st and again at the Wells Fargo Energy Symposium on December 9th. If investors like what they hear these events could be a catalyst to spark the next leg higher.

Currently shares of SLCA appear to have short-term resistance in the $21.40 area. Tonight we are suggesting a trigger to launch bullish positions at $21.55.

Stop Loss: 54.85
Target(s): To Be Determined
Current Gain/Loss: +1.5%
Entry on November 21 at $55.15
Listed on November 19, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 1.4 million
New Positions: see below

Comments: 12/02/15:
TSS followed the market lower this afternoon and essentially erased yesterday's gains. If this dip continues I'd look for support near $55.00.

No new positions at this time.

Trade Description: November 19, 2015:
TSS must be doing something right. Earnings and revenues have grown every quarter for the last four quarters. The stock has shown significant relative strength with TSS up +60% year to date.

TSS is part of the financial sector. According to the company,
"As one of the world's largest payment solutions and services companies, TSYS® believes payments should revolve around people, not the other way around. Since we got our start in the payments space more than 30 years ago, we have evolved from a supporting role servicing several hundred bank card issuers and bank acquirers to directly touching hundreds of thousands of merchants and millions of consumers.

TSYS is a global, publicly traded company with operations in more than 80 countries, including many of the world's most high-growth emerging markets. We provide electronic payment services to financial institutions and companies around the globe with a broad range of issuing and acquiring payment technologies, including consumer, credit, debit, healthcare, loyalty, prepaid, chip and mobile payments."

As I mentioned earlier the earnings picture has been very healthy. TSS has beaten Wall Street's earnings and revenue estimate the last four quarters in a row. Earlier in the year they announced a 20 million share stock buyback. Plus management has raised guidance the last two quarters in a row.

TSS' most recent earnings report was October 27th. Wall Street was expecting a profit of $0.59 a share on revenues of $668 million. TSS announced that earnings were up +40% from a year ago to $0.78 a share. Revenues were up +15% to $708 million. The company management said, "we are raising our guidance range for revenues before reimbursables to 12-13%, up from the previous range of 10-12%, and our adjusted earnings per share (EPS) guidance range to 24-26%, up from the previous range of 15-17%."

You can see how the stock surged the next day on its strong results and bullish outlook. Since then shares of TSS have been consolidating sideways but it looks like that consolidation is almost over. Shares have rallied back toward round-number resistance at $55.00. Currently the point & figure chart is bullish and forecasting at $65.00 target. Tonight we are suggesting a trigger to launch bullish positions at $55.15.

Stop Loss: 27.90
Target(s): To Be Determined
Current Gain/Loss: +13.1%
Entry on November 18 at $27.75
Listed on November 17, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.5 million
New Positions: see below

Comments: 12/02/15:
YELP shot higher this morning. Shares managed to ignore most of the market's weakness today and YELP outperformed by closing with a +3.5% gain on the session.

Readers may want to raise their stop loss. No new positions at this time.

Trade Description: November 17, 2015:
It has been a rough ride for YELP investors. The stock is down -50% year to date and off -72% from its all-time highs set in 2014. Yet the action lately is starting to look like all the bad news is priced in.

YELP is considered part of the technology sector. According to the company,
"Yelp Inc. (http://www.yelp.com) connects people with great local businesses. Yelp was founded in San Francisco in July 2004. Since then, Yelp communities have taken hold in major metros across 31 countries. Approximately 83 million unique visitors visited Yelp via their mobile device1, including approximately 18 million unique devices accessing the Yelp app2, and approximately 79 million unique visitors visited Yelp via a desktop computer3 on a monthly average basis during the second quarter of 2015. By the end of the same quarter, Yelpers had written approximately 83 million rich, local reviews, making Yelp the leading local guide for real word-of-mouth on everything from boutiques and mechanics to restaurants and dentists."

The earnings picture has struggled this year. YELP's Q1 and Q2 reports both missed analysts' estimates. YELP also guided lower each time. Then there was news in July that YELP had given up on trying to sell itself because they couldn't find a buyer.

The revenue picture improved in the third quarter. YELP reported its Q3 results on October 28th. Earnings of $0.03 a share missed estimates of $0.06. Yet revenues were up +40% to $143.6 million, which was better than expected. Management then raised their 2015 guidance.

On November 13th shares of YELP received a big upgrade from RBC Capital Markets who raised their outlook to "outperform" and upped their price target from $34 to $42. Meanwhile recent news that InterActiveCorp (IACI) had offered to buy Angie's List (ANGI) might restart the M&A speculation on YELP since ANGI and YELP are in similar businesses.

Technically shares of YELP definitely appear to have formed a bottom over the last three months. The rally from its October lows has generated a buy signal on the point & figure chart that is forecasting a long-term target of $37.00. Right now YELP is flirting with a breakout past its early August peak. A breakout could spark some short covering. The most recent data listed short interest at 22% of the 60.8 million share float.

We are listing YELP as an aggressive, higher-risk bullish trade. The stock can be volatile so readers may want to limit their position size. Tonight we are suggesting a trigger to launch positions at $27.75.

Stop Loss: 56.15
Target(s): To Be Determined
Current Gain/Loss: -2.7%
Entry on November 24 at $52.35
Listed on November 23, 2015
Time Frame: Exit PRIOR to earnings in January
Average Daily Volume = 2.2 million
New Positions: see below

Comments: 12/02/15:
I couldn't find any news to explain the gap higher in shares of BBBY this morning. Fortunately the rally faded beneath the $55 level and shares closed back in the red.

No new positions at this time.

Trade Description: November 23, 2015:
Retail stocks have had a rough time this year. Wall Street has been concerned about consumer spending. Plus there is the constant pressure from online rivals chipping away at margins and traffic from brick and mortar stores. The XRT retail ETF is down -7.1% year to date but it's off -12.4% from its 2015 highs. BBBY has underperformed its peers. This stock is down -30% year to date and down -33% from its 2015 highs. Tonight the bear market in BBBY looks ready to accelerate lower.

BBBY is in the services sector. According to the company, "Founded in 1971, Bed Bath & Beyond Inc. and subsidiaries (the 'Company') is a retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon or Harmon Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products from the Company either in-store, online or through a mobile device. The Company has the developing ability to have customer purchases picked up in-store or shipped direct to the customer from the Company's distribution facilities, stores or vendors. In addition, the Company operates Of a Kind, an e-commerce website that features specially commissioned, limited edition items from emerging fashion and home designers. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond."

The earnings outlook has been challenging for BBBY. In April 2015 they reported their Q4 results. Earnings were inline but revenues missed estimates and management guided lower for Q1. Jump to June and BBBY reported earnings that missed estimates (even after guiding lower). Revenues were only up +3% and management guided lower again.

The company reported their Q2 results on September 24th. Earnings were up +3.4% from a year ago to $1.21 a share. That was in-line with Wall Street's lowered expectations. Revenues only rose +1.7% and missed estimates. Comparable store sales fell from +2.2% in Q1 to +0.7% in Q2. Management offered another soft outlook for current quarter. BBBY tried to soften the bad news by announcing an additional $2.5 billion stock buyback to follow their current buyback program, which had dwindled to $305 million.

Technically it looked like BBBY had broken out past its multi-month bearish trend in early November. Shares had rallied above some key resistance trend lines and above resistance at the 50-dma and the $60.00 level. Unfortunately for bullish investors this proved to be a trap. A few days later BBBY broke down again. Shares plunged to new multi-year lows. The point & figure chart is now forecasting at $45.00 target.

Multiple analysts have suggested that consumer spending this holiday season will disappoint. It looks like BBBY traders are not sticking around to find out if Wall Street's sour outlook is correct or not. We think BBBY's bearish momentum continues. The stock currently has short-term support near $52.50. We are suggesting a trigger to launch bearish positions at $52.35.

Stop Loss: 18.75
Target(s): To Be Determined
Current Gain/Loss: -1.7%
Entry on November 30 at $17.70
Listed on November 28, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments: 12/02/15:
This morning Bloomberg.com published an article discussing Oppenheimer's LUK upgrade from yesterday. This might be the catalyst behind today's spike higher in LUK at the open. Shares traded up to $18.18 before settled on the $18.00 level.

This display of relative strength is ill timed for our bearish play. No new positions at this time.

Trade Description: November 28, 2015:
Investors appear to have soured on shares of LUK. The stock is down -20% year to date but it's off -29% from its July 2015 highs. LUK just ended the week at new five-year lows.

LUK is considered part of the financial sector. One of their biggest businesses is their Jefferies Group investment brokerage. Jefferies is only one in a long list of companies that LUK owns. You could argue LUK is more of a holding company or a conglomerate and a very diverse one at that.

The earnings picture for LUK has taken a drastic turn for the worse.
Their Q1 report, announced March 17th, showed earnings of $11.7 million versus $112 million a year ago. Q1 revenues were down -34%.
LUK delivered similar results with their Q2 earnings, announced August 5th. Earnings per share were $0.11 compared to $1.12 a year ago. Revenues were flat at $2.84 billion.
Their most recent earnings report was November 5th, 2015. LUK reported their Q3 results, which was a loss of ($0.47) a share versus a profit of $0.14 a year ago. Revenues plunged -21% to $2.36 billion.
You can see why investors might be selling the stock.

Management has been trying to take advantage of their low stock price with an aggressive stock buyback program but it's not making much difference. Technically shares of LUK are in a bear market and showing significant relative weakness.

The point & figure chart is very bearish and forecasting an $11.00 target. The last few days LUK has been trying to hold short-term support near $18.00 but that appears to have failed. Tonight we are suggesting a trigger to launch bearish positions at $17.70.

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +14.4%
2nd position Gain/Loss: +35.6%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: to be determined
Average Daily Volume = 50 million
New Positions: see below

Comments: 12/02/15:
The VXX dipped toward its early November lows and bounced. More conservative investors may want to take profits now.

Currently our exit target is $16.65.

No new positions at this time.

Trade Description: August 24, 2015
The U.S. stock market's sell-off in the last three days has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on this long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

(see VIX chart from the August 24th play description)

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet. Our time frame is two or three weeks (or less).

- Suggested Positions -

Short the VXX @ $21.82

Sept. 2nd - 2nd position (Double Down On The September 1st Spike)

Short the VXX @ $29.01

11/07/15 adjust exit target to $16.65
11/02/15 adjust exit target to $16.50
10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike